In a private letter ruling (PLR 201522001), the IRS ruled that a corporation that had been filing its U.S. federal income tax returns and otherwise operating as a corporation, failed to file its annual state corporation report and pay its annual state franchise tax in its state of incorporation. As a result, the corporation was administratively dissolved under state law.
Nonetheless, the corporation continued to file its federal Form 1120, "U.S. Corporation Income Tax Return," and otherwise pay all corporate taxes. When the taxpayer corporation realized the dissolution had occurred, it reincorporated in the same state on a subsequent date.
The IRS ruled that the taxpayer's status as a corporation did not terminate in spite of the administrative dissolution. While this result appears equitable at first blush, it raises many collateral issues in connection with situations such as de facto liquidations and state and local tax concerns.
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